Challenging ClosingsBy Kormans LLP
One thing we can always count on in the world of residential real estate transactions is that the market always changes. We never know how long a market will remain static or what in fact will change, but we do know that change itself is inevitable. With each market change, there are new opportunities and challenges for Buyers, Sellers, Lenders, Realtors and Lawyers. With all the reports that you are reading in the media on today’s real estate market, it is often difficult and confusing to understand what is actually happening.
Currently we are experiencing a significant market shift from a low supply driven multi-offer bids sellers’ market that drove purchase prices to record highs, to a very different dynamic in the marketplace. Creeping inflation, multi-increases in interest rates, and the continuance of low supply are among the significant factors affecting the current market. This market shift is having a significant effect on the ability of Buyers to close transactions that are already under contract. Many Buyers were “pre-approved” for mortgage financing; however, such approvals were subject to the Lender obtaining an appraisal just before the closing date. The appraisals are very often below the purchase price, resulting in the Lenders only willing to advance funds based upon a percentage of the appraised value—as opposed to a percentage of the purchase price. This leaves Buyers scrambling days before the closing dates to come up with additional down payment funds and/or alternate financing such as very expensive private lending.
Many Buyers are struggling to make these arrangements in time to complete their transactions on the contracted closing date. Some Buyers seek extensions, sometimes without even knowing for certainty when and/or if they can close on the extended closing dates. Some Buyers seek termination of transactions with or without a mutual release, hoping that they have a sympathetic Seller that will agree to return some or all of the deposit and not expose them to future litigation. Of course, Sellers are also concerned over their legal rights in these scenarios and their available options. Often there is a whole chain of transactions that are affected by the inability of one Buyer to close on time, or even at all!
There are many strategies and options that must be considered depending upon the factual situation of the parties involved. Whether you are buying or selling these days, it is more imperative than ever to ensure that you have the best team consisting of a knowledgeable and experienced lawyer, realtor, and mortgage professional, advising you as to your legal rights and available options, as well as guiding you through the practicalities of your particular scenario in order to successfully close your transaction in these challenging times.
Please feel free to reach out and contact us anytime! With the right team in your corner, you will be in a position to make a much more informed business decision as to your real estate transaction.
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David H. Korman is the Managing Partner at Kormans LLP. His practice areas include residential and commercial real estate transactions, commercial leasing and private and institutional lending. You can reach David at email@example.com.
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